With this belief in mind and with the help of my colleagues from Montana, we fought to preserve the competitive option for Montana. I say option because at first we tried to breathe life into the Milwaukee through reorganization plans. We encouraged purchasers to buy out all or part of the line with the idea of preserving service through to the west coast and finally we fought for and obtained rail banking funds to at least obtain right of way to preserve the potential of future competitive rail services. ANTI-COMPETITIVE BEHAVIOR Instead of a preserved potential of competition, we now have the BN cinching our State tighter than a hangman's noose by joining with the State of South Dakota to run and eventually take title to the Milwaukee line into Terry, Mont., and by proposing to abandon more than 60 percent of its branch lines in Montana. The BN move in South Dakota is particularly troublesome to me because it forecloses forever rail competition in eastern Montana, which is the northern end of the vast Powder River coal deposits. With the BN operating the South Dakota to Terry line, only one railroad will be operating from the northern end of the world's largest coal field. And yet the Justice Department tells me that, in essence, Montana can only support one railroad. Yet, grain, lumber and other products are also shipped in large quantities as well as coal from Montana. The Burlington Northern is also strangling Montana with its branch line abandonment policy. The BN a year ago proposed to abandon more than 60 percent of its branch line mileage in Montana. Yet remember in the merger days Montanans were assured of improved service. They were also promised well-maintained tracks. Instead, the abandonments, some of which the ICC has already approved, mean no service on those lines and many of these abandonments, are the result of deferred branch line rail maintenance. Ask BN and they will tell you every time that it just is not worth fixing up the right-of-way, the roadbed and the rail. Let it die. Let those branch lines go by the board. So much for promises and assurances of the merger. At least ICC Administrative Law Judge Hopkins knows the story. That is that the BN has market dominance in Montana and is charging unreasonable rates. I hope the Commission sustains Judge Hopkins' opinion in the McCarthy Farms, et al. case. LAND GRANTS As to the holding company issue, my first concern for the formation of holding companies from land grant railroads is the fact that the land grants made by Congress to these railroads were for the purpose of obtaining and sustaining railroad transportation service. By creating a holding company, these assets are spun off from the railroad to another subsidiary and, in many cases, to a number of subsidiaries. While this may appear to be a change without profound impact, the reality is to the contrary. As the Milwaukee bankruptcy clearly demonstrated, once spunoff, these assets are those of the subsidiary and would not be avail able for direct support of the cash needs of the railroad without a court order. While the Milwaukee was not land granted on its Pacific Coast extension, nevertheless, this bankruptcy itself ought to change the ICC's mind regarding its role in enforcing the use of these grants for the support of railroad service operations. RATES Second, the holding company scenario concerns me because of the contract rate provisions that were put into the Staggers Rail Act. Competitors of subsidiaries of the BN Holding Co. could be unfairly disadvantaged in contract rate negotiations because the BN Railroad could give BN's other subsidiaries preferential rates. For example, in Montana, BN's subsidiary, Plum Creek Lumber, which competes with Champion International and other lumber companies, could get rates more favorable than Champion or other lumber companies. The ICC has no authority over contract rates as a result of the Staggers Rail Act. And these rates are set in secret out of the public eye. There is no protection there. How about the Antitrust Division of Justice? Well, they could not find any violation in the merger conditions by BN, and I am not sure how alert they are going to be in finding that any contract rates are being anticompetitive. Finally, I would like to address rates. As Administrative Law Judge Hopkins' decision so accurately found, BN's grain rates were excessive. BN will tell you exactly why the rates in Montana and North Dakota are high. They are honest about it. It is that they have to recoup their margins lost in areas like Nebraska and Kansas, where they hold down grain rates to meet their competitors' rates. But why should Montana shippers subsidize shippers in areas where there is competition. Is that not discriminatory on its face? And what about the unit train rates? BN promised to preserve the 26-car rates; sure, they are preserving them, but the differential between the 26-car rate and the 52-car rate keeps getting bigger and bigger. So, what good is it to preserve the 26-car rate if you squeeze the economic value out of its very existence? Rail freight rates can kill Montana's economy. It is up to all of us to protect the public interest. By us I mean the shippers, the State public service commissions, the State officials, the ICC, the Department of Justice, and Congress itself. To my mind, we are not doing a good enough job of protecting the public interest, and I hope this hearing is a step toward reversing that. Mr. Chairman, I would like to submit for the record the decision of Judge Hopkins in McCarthy Farms, et al., v. Burlington Northern, Incorporated, which I referred to in my statement. Senator BAUCUS. Without objection, that will all be included. Also, I have a statement submitted by Senator John Stennis which I would like to include in the record. [Material referred to follows:] By complaint filed on March 27, 1981, complainants McCarthy Farms, Inc., Alan Larson, Dale L. Skaalure, Viggo Anderson, Rasmussen Farming Corp., Mattson Brothers, Inc., and Sheridan Green Co., Inc., allege that they individually, and other growers and elevators they represent, as a class, have been subjected to the payment of rates and charges for the transportation of wheat, and other grains, over the lines of the defendant, from stations in Montana to Pacific Coast terminals in the states of Oregon and Washington that, were and are unreasonably high in violation of 49 U.S.C. 10701(a) and former section 1(5) of the Interstate Commerce Act (49 U.S.c. Sec. 1(5). This complaint was filed with the Commission on referral from the U.S. District Court of Montana, Great Falls Division by order dated March 16, 1981. In the Court proceeding, the complainants sought the prescription of reasonable rates and reparations. The Court referred the matters concerning the reasonableness of the rates to the Commission and stayed its proceeding pending Commission determination of that issue. This matter was referred to the undersigned for handling under the modified procedure. The verified statements and exhibits submitted are hereby received in evidence. Statement of Facts and Contentions of Parties The named complainants are growers of grain and elevators, and grain operators in the state of Montana. McCarthy Farms, Inc., is a farming corporation located in Plentywood, Sheridan County, MT. Alan Larson is a representative of a farming partnership who resides at Big Sandy, Choteau County, Viggo Anderson is a representative of a farming partnership, residing at Great Falls, Cascade County, Rasmussen Farming Corporation is a farming corporation operating in Hogeland, Blaine County, Mattson Brothers, Inc., is a farming corporation operating in Chester, Liberty County. Sheridan Grain Co., Inc., is a corporation with its principal offices in Reserve, Sheridan County and is engaged in the operation of a grain elevator business. The complaint before the Commission challenges the reasonableness of rates on wheat and barley, published in North Pacific Coast Freight Bureau Tariff No. 4011 (ICC NPCF 4011-A, formerly No. 13) Items 5200 through 6412 (wheat and barley), Item 3233 (wheat) of Supplement 7, (effective December 1, 1980) and Item 3027 (barley) in Supplement 11, (effective January 12, 1981). Complainants request that the Commission find the rates to be unreasonable, prescribe reasonable rates and advise the Court of the findings. The complaint was timely filed under Section 229 of the Staggers Act of 1980. (Staggers Act) and is complete. See No. 38246, Columbian Chemicals Co. v. Atchison Topeka & Santa Fe Railway Co. (decided August 28, 1981). No. The defendant filed a motion to vacate modified procedure or. May 18, 1961, pointing out that the same rates from the same origins to the same destination were also under challenge in No. 37815, Montana Dept. of Agriculture, et al. v. Burlington Northern, Inc., a complaint filed under Section 229 of the Staggers Act. Defendant objected to the unfair burden of having to simultaneously defend two complaints against these rates, both of which purport to protect the same interests. This motion was not ruled on by the Commission. Since the instant case has progressed to the decision stage, while No. 37815 is awaiting assignment, this Judge believes the proper action herein is for him to proceed to a decision in the instant proceeding. The Complainants: McCarthy as noted is a farming corporation located in Plentywood, It sells its wheat to grain companies. It is paid the Portland, OR price per bushel. MT. Dale L. Skaalure is a partner in the farming partnership of Skaalure Brothers, which is located 15 miles southeast of Big Sandy, MT. Skaalure Brothers sells its wheat to a grain company which ships it to Pacific North Coast points via BN. It is paid the Portland market price, less freight and handling charges. Viggo Anderson is a partner in the farming partnership of Andersen & Hovland located in Great Falls, Cascade County, MT. Grain elevators pay the Portland price for its wheat less shipping and handling charges. More than 20 percent of its revenues go to transportation costs. Rasmussen Farming Corp. is a farming corporation operating in Hogeland, Blaine County, MT. From September 1978 through September 1980, it sold its wheat to grain companies and coops. It contracted directly with BN for the transportation of its wheat. It owns an elevator to which its wheat was delivered and shipped directly. The price it receives is F.0.B. Portland, minus the transportation charges. Rasmussen Farming Corp. pays 20 to 30 percent of its receipts from the sale of wheat for transportation costs. Matson Brothers, Inc. is a farming corporation located in Chester, Liberty County, MT. It sells its wheat to a food company or a farmers union. It is paid the Portland rate less handling and freight charges. Sheridan Grain Co., Inc. has its principal offices in Reserve, Sheridan County, MT. It is in the grain elevator business. Cost Evidence Complainants presented voluminous cost evidence which they developed using a traffic sample of 109 carload movements taken from the one percent sample in 1979 carload Waybill Statistics, Statement TV, published by the U.S. Department of Transportation. Complainants developed specific cost data from observations of involved operations and through conversations with railroad operating personnel. In conducting their study, complainants spent more than 30 days in the field and observed operations on every major involved branch line. To the extent that they were unable to develop cost data, they used BN's 1977 Rail Form A system average unit costs, excluding fixed plant expenses and investments solely related to coal. Rather than submit cost evidence from its own sources, BN has sought to demonstrate the existence of errors in complainants' evidence by restating the cost of the same 109 shipments. However, at the same time, BN argues that the one percent waybill sample is not a valid basis for cost studies of the issue traffic. BN maintains that traffic patterns have changed substantially since 1979 due to rate reductions and the No. 37609F establishment of in this proceeding 266, 26 and 52 car Jar mates that apply between points at issue states that since such rates were established, traveling from Hontana to the Pacific Northwest I also maintains that complainants have ports have be. icaued. challenged the wrong rates. BN has not own that the one percent way bill sample is invalid. The single car rates at isue remain in effect. Although most of the grain traffic now moves under multiple car rates, that does not invalidate the sample for the purpose it is used. The presently applicable rates in Supplement 7 and 11 provide varying levels of rates depending on whether the shipment consists of a single carload, multiple car shipments of fewer than 26 cars and snipments of not more than 52 cars and are subject to expiration dates. If these rates were allowed so expire, it appears the higher rates in item 5200 through 6412 would apply. The export rates applicable on multi-carload movements are not in dispute here. Indeed, BN's reliance on ti sane 109 cars is illustrative of its validity. B also asserts that it is somehow improper for complainants to Include barley rates in their complaint because the court case only concern wheat rates. Lowever, there is no reason why complainants should be limited to the scope of the court case. The complaint stands on its own meri:s before the I.C.C. BN argues that omplainants' 30 day operating cost study does not provide sufficiently reliable data to be used in lieu of Rail Form A costs. Since Bld not seek to refute complainants' data and since the methodology used in the study is adequate, it will br cepted as the best evidence of record. The Commission has consistently held that the use of actual cost Mata is more desirable than Rail Form A system averages. See, Fules Governing the Assembling and Presenting of Cost Evidence, 337 1.7. 298, 305 (1970); General American Transportation Corp. v. Indiana Herb. Beit Railroad Co., 35?, I.C.c. 102, 130, 134 (1977), aff'ċ sub num., Indiana Harber Belt Railroad Cc. v. U.S., 77 P.2d 3941978; Absorption of Switching Charges, Southern Territory, 301 I.C.C. 883, 887 (1979), Ex Parte No. 355, Cost Standards for Railroad Rates, 364 I.C.C. 898, 903 (1981). Finally, R advocates the use of its 1977 Rail Form A including fixed plant expenses and investments solely related to coal. It maintains that the Commission in Ex Parte No. 347 (Sub-No. 1), Coal Rate GuidelinesNationwide, 364 I.C.C. 360 (1980) is severely limiting the use of fixed plant investment additives. This is not persuasive. No final decision has been reached in Ex Parte No. 347 (Sub-No. 1). Moreover, if B were allowed to use it: Rail Form A costs that include these additives in both grain and coal proceedings, it would in effect be allowed duplicate recovery of the investments. The following is a discussion of other aspects of B's cost evidence and complainants' revised cost evidence. (1) Net Tons. Both parties used the same net tons per car (2) Tare Weight Per Car. BN used tare weight tons from the sample will complainants used BN's Form A system average. Although BN's methodology is more precise, it does not appear to make an appreciable difference in the cost results. (3) Number of Locomotives Used. Through their study, They |